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Technology Stocks : IBM -- Ignore unavailable to you. Want to Upgrade?

To: Robert Scott Diver who wrote (7545)	3/26/2002 11:20:17 PM
From: Michael Bakunin	Respond to of 8218

RSD - If you have any overview statistics, marginal indicators, URLs or the like that would help me see IBM gaining share in key areas, please post, post, post. Leave off the product announcements, though, unless you have analysis. My faith that IT's share of economic production will grow is not as unshakeable as yours. IT's share of GDP may well shrink. We've seen that as IT use grows, its cost falls. If costs come down faster than use goes up... ipso facto, QED, blah blah. In the near term, money supply growth will raise final demand, leading to the now widely expected general rebound and rate hikes this summer. Once we get that rebound, though, I don't see any big catalysts. -mb

To: Robert Scott Diver who wrote (7545)	3/27/2002 10:37:39 AM
From: Arrow Hd.	Read Replies (1) \| Respond to of 8218

This is just a general response to the discussion on market share and is somewhat radical in thinking but think about it and see what you think. Every IBM executive I have ever known pushed for more market share. It was on every chart and on the lips of anyone on "executive resources". But beyond a certain point, in a competitive market, increased market share reduces overall revenue and causes draconian and non-linear erosion of margins! How could this be possible. Because at least 10% of the world hates IBM and would never do business with them unless the product is given away and another 10% are so cheap that buying the business is basically a prerequisite to get in the door. That leaves at max about 80% of a market for a vendor to corner in a non-monopolistic environment before draconian price attrition ruins your revenue and margin models. This price attrition bleeds to all customers almost instantaneously. One reason is bulk buying under "most favored nation" status. That says that if anyone else gets a better price then retro-actively, during a time-line (lets say a calendar year), the vendor will go back and credit that customer the delta between his price and the better price. And basic negotiated pricing, with consultants like Gartner providing the direction, results in almost instant pricing granularity within a market. I always preached the 80% rule to any executive I had to provide guidance to but it fell on deaf ears. Only the finance folks really understood it and they fortunately protected down-side pricing erosion by putting in a pricing bandwidth below which no one could go. This "market share mania" is even worse with other companies. Look what has killed consumer PCs - price wars to get market share. Though these price wars also lead to expanded markets as more consumers can buy the product, it also leads to increased losses if each unit shipped is sold at a loss. It is far better to differentiate your product in function, add meaningful service and support, have the highest reliability and customer satisfaction ratings and price your product at a profit. From this point you accept your market share based upon the metrics of this "going concern" model. Because AAPL has a different technology they are somewhat "forced" into this kind of thinking yet they too fall for the market share mania. Market share is no different from any other financial metric. At some point (and I say 80%) the laws of diminishing return kick in and destroy the entire business model.